Fleet Management Standard Bank

Fleet Management: Risky BusinessRisk mitigation and technology in the fleet industry

25th April 2013

Contents

Page

1. Relevance and positioning of fleet management

2. Fleet market trends

3. Challenges and risks

4. Fleet solutions

5. Conclusion

Relevance of fleet management

3

Relevance of fleet management

Definition and purpose of fleet management

Definition:– Fleet management can be defined as the process whereby the operation of and costs

relating to a fleet of vehicles are controlled. It is a specific management discipline with recognised theory and techniques.

Purpose:– Organisations face many challenges in managing their fleet expenses and risks effectively.

Such challenges can be serious and require immediate action or they may distract from business related tasks and activities. Fleet management techniques applied correctly will take care of challenges and mitigate risks.

Applying fleet management:– Companies are focussed on cost management to prevent revenue leakage. The fleet owner

needs convenience, sophistication and quick access to information. Fleet management must provide a full range of custom-made fleet management services that will assist companies in managing and controlling costs.

– Various categories of fleet expenses must be managed and invoiced through a single Fleet Management account. Fleet expense records need to be up-to-date, accurate and easy to access. For reporting needs, fleet management service providers must provide the convenience of a range of sophisticated, but easy-to-use tools to manage fleet expenses.

Relevance of fleet management

Positioning of fleet management by fleet card issuers

The four main fleet card issuers Absa, Firstrand (Wesbank), Nedbank and Standard Bank together have approximately 700 000 fleet cards on issue. A fleet card can be issued for a variety of services ranging from fuel purchases, oil, tolls, maintenance and tyres

The fleet card issuers also offer managed maintenance (MM) and Full Maintenance Leasing (FML)

Challenges and risks

The impact of rising fuel price on fuel costs

Managing vehicle maintenance costs

Changing technology

Fleet ownership versus leasing

Fleet market trends

7

Fleet market trends – Fleet card

Transaction authorisations:

– When Chip and Pin was introduced during 2008 and 2009 in the credit and debit card space, the fleet card issuers experienced migration of cloned cards from debit and credit cards to fleet cards where Standard Bank Fleet Management’s risk suspense account which averaged around R1 million at any given time escalated to in excess of R8 million at the end of the first quarter of 2009

– Standard Bank Fleet Management pioneered the transaction online authorisation project by submitting a request to the Payments Association of South Africa (PASA) who in return required it to be an industry project

– The fleet card issuers agreed to a project resulting in each developing negative card files hosting for example lost, hot or inactive cards. Transactions for such cards will be declined

– Standard Bank Fleet Management took the project one step further, and in addition to a negative card file also decline transactions for irregularities, ranging from tank capacity exceeds to use of card in rapid succession

– By doing both the irregularity monitoring and the negative card file monitoring, Standard Bank Fleet Management declined R228 million in 2011, R257 million in 2012 and YTD declined R54 million.

Fleet market trends – Fleet card

Chip and Pin Cards:

– Chip and Pin technology is currently being explored in the fleet industry

– Currently, with 95% of all transactions dialing up for authorisation, a Chip and Pin roll out is not considered a threat to transaction authorisation as the transaction will still be routed online for authorisation

– Chip and Pin could benefit the fleet card industry especially in multi-national and corporate customers who require to refuel cross-border in non-common monetary areas

– Fleet Management will explore the feasibility of Chip and Pin card as an option

Fleet market trends - Leasing

South Africa

Byron Corcoran, Head Finance and Leasing at Bidvest: “...there is a healthy demand for vehicle finance and leasing”

Murray Price, MD of Eqstra Fleet Management: “...many fleet owners and operators are questioning their traditional funding models, which are often driven more by habit than reason”

Global

Customers utilise multiple funding options based on the asset type, usage, lifecycle and capital constraints

More focus on whole-life cost of the fleet, coupled with strategic cost-saving initiatives and productivity benefits that is the true measure of value for money

Fleet market trends – Carbon tax

South Africa

The tax on motor vehicle CO2 emissions increased on April 1 – from R75 to R90 for every gram of emission per kilometre above 120g of CO2 per kilometre and in the case of double cabs from R100 to R125 for every gram per kilometre in excess of 175g per CO2 per kilometre. This will contribute approximately 1.0% to increased car prices

Vehicle sales of hybrid vehicles is less than 1% of total car sales (much slower growth than Europe)

Global

The introduction of new EU-backed carbon emissions limits of 130g/km by 2015 and 95g/km by 2020, mean that governments will lower the CO2 emission thresholds within their national car tax regimes

A steady increase in the number of companies reporting their emissions internationally

Vehicle sales of hybrid vehicles is approximately 4% of total car sales

Fleet market trends – Real time information

Global

“The fleet market is moving at such a pace that fleet decision-makers and their drivers increasingly require access to leasing and fleet management information whilst away from the office. They require on-demand functionality delivered through mobile internet channels to devices such as smart phones and tablets,” said Jan Bouckaert, Head of Business Development at Sofico.

“The rise in mobile internet access and usage through hand held devices, like smart phones and tablet PCs, is causing a paradigm shift in working practices.”

The latest forecasts estimate that mobile internet users worldwide will overtake those who rely on a traditional desktop internet connection by 2014. Many company employees now regularly use web-enabled smart phones and other hand-held devices to access daily workflows and receive important business information, often out of the office.

Challenges and risks

13

Challenges and risks

Fuel costs Fuel is the largest fleet expense and critical to manage and control Fuel price increases have a major impact on fleet cost – indicated in fuel price versus fleet card

fuel transaction values since 2010 Fuel price increases resulted in average fuel cost per transaction of Standard Bank Fleet

customers to increase from R515 in January 2010 to R833 in December 2012 (62%) Vehicle condition and driver behavior are contributing factors that impact on fuel costs and must

be managed (ultimately also impacts the value of the vehicle at replacement) Costs can be controlled and managed by exception with fleet reporting that indicate fuel

efficiency against national averages

Challenges and risks

Maintenance costs Vehicle maintenance costs are challenging to control Fleet owners have to ensure that vehicles are routinely serviced, tyres replaced on

time and deal with technical issues Well maintained vehicles positively impacts resale values Maintenance costs on average increased by approximately 17% from 2010 to 2012 Average value per invoice increased from approximately R2 500 to R3 300 per month

Challenges and risks

Changing technology

Pre 1990’sPaper reporting

Early 1990’s Reporting via software packages

Early 2000’s Electronic reporting

Mid 2000’s Web reporting

Current decadeOnline transaction authorisationsCarbon footprint reporting

Potential future development: Apps, access to real time data, etc., possibly via handheld devices

Challenges and risks

Fleet ownership versus leasing

European fleet operations have evolved in that almost everything is based on external suppliers – vehicle sourcing, finance, servicing, fleet management. Supplier management becomes critical

In contrast with European countries, majority of South African companies own their vehicle fleet and thus take full responsibility and cost for acquiring, running, maintaining and disposing of fleet vehicles

In addition, vehicles are purchased cash by many companies, thereby impacting on cash flow

Any unexpected vehicle maintenance and repairs are for the company’s account

At the end of its economic life, most vehicles are sold at market price or below, therefore the full loss in value is borne by the company

Fleet solutions

18

Fleet solutions

Transaction authorisations

Fleet card industry changed the acceptance of fleet cards from an offline to an online environment

Invalid and hot listed card transactions are declined

Transactions can be declined based on:– Tank capacity exceeded;– Time limitations;– Cancelled cards;– Wrong card type used

Daily reporting on declined transactions

Online access to real-time transactions of fleet vehicles

Carbon footprint reporting

Developed ECO2Fleet, a web-based fleet management data collection and reporting service that measures the carbon emissions of vehicles and is aligned to the principles of the Greenhouse Gas (GHG) Protocol, a globally recognised accounting tool used to measure carbon emissions

Companies need tools to manage, track and report their carbon footprint that can also facilitate the implementation and management of a strategy to reduce their carbon footprint.

Fleet solutions

Predictive modelling Using their own fleet transactional and operational data, companies can view

the impact of variables on fleet expenses, including fuel price changes, interest rate changes, tyre price increases, more fleet vehicles

Variables that can be adjusted:

Example of fuel price change (Petrol price was R12.00 and Diesel R12.50):

Petrol Price: R11.50Diesel Price: R12.00

Type Average - last 3 months New monthly averagesValue of fuel transactions 31704.51 30393.2Value of petrol transactions 26434.34 25318.4Value of diesel transactions 5270.57 5074.8

Conclusion

Conclusion

A well-run and properly managed vehicle fleet is only possible if fleet owners considered and implemented the fleet solution that is best for their specific operational conditions and financial mandates

A fleet solution and the fleet management principles that are applied must address risk mitigation in order to stay within the financial mandate that was set for the fleet

Many new and sophisticated technologies and tools are available that were developed to assist fleet owners in managing and controlling fleet expenses and risks

Vehicle fleets should assist businesses in delivering compelling results and this is possible when utilising the appropriate fleet management tools.

Thank you